Legg Mason's Bill Miller Calls 'the Bottom'

Presumably this is a different bottom than the one he called in April 2008.

"The worst is behind us." 23 April 2008 - Bill Miller

Bill Miller of Legg Mason Calls a Bottom

Reuters
Legg Mason's Miller: "Bottom's been made" in stocks
By Jennifer Ablan and Herbert Lash
Wed Dec 3, 2008 3:56pm EST

NEW YORK, Dec 3 (Reuters) - Legg Mason's Bill Miller, a celebrated investor but whose stock picking is far off the mark this year, said on Wednesday the "bottom has been made" in U.S. equities.

He recommends that the Federal Reserve buy stocks and junk bonds to avert a deeper financial crisis, adding "the taxpayer would make a killing" as markets rebound. (Yikes! - Jesse)

Speaking at Legg Mason's annual luncheon for media, Miller said that all long-term investors believe that stocks today are cheap, but credit markets must regain health before equity markets can rally.

It "looks as if the bottom has been made" in U.S. stocks, he said.

Miller told Reuters the year has been "terrible, a disaster and awful," yet he held out his past performance in down markets as a reason why he should not be counted out.

"We've performed in most of the financial panics that we've had -- the last one being the three-year bear market ending in 2002 -- we outperformed all the way through that," he said.

"So even though we lost money, we lost a lot less money than the market did," Miller added.

However, Miller acknowledged that his performance has been worse than in past downturns.

"When you're underperforming and losing more money than the market in a down market, then that's a much more problematic situation. We've performed far worse than I would've predicted we would," he said.

For the year, Miller's flagship Value Trust LMVTX.O fund was down 59.7 percent as of Tuesday, compared to a 41 percent decline in the reinvested returns of the S&P 500 index, according to Lipper Inc., a unit of Thomson Reuters.

Performance over the year-to-date, one-, three- and five-year periods for Value Trust put it at the bottom of the barrel among its peers, Lipper data shows.

The severe sell-off has provided ample opportunities. (Yes. Like a plague creates plenty of vacancies in hotels - Jesse)

"This market is very unusual because since the end of the second quarter, it has been a pure scramble for liquidity which accelerated obviously post-Lehman Brothers and people sold without regard to value at all," Miller said.

"So at the end of the end of this quarter, every sector in the market has companies that represent what we think are exceptional value."

A Few Charts in the Babson Style for Midweek 3 December

November Payrolls Report Preview

The Non-Farm Payrolls Report for November will be released on Friday 5 December at 8:30 AM EST.

The consensus of economists is for a loss of 325,000 jobs, as compared to October's loss of 240,000 and September's loss of 284,000 which are likely to be revised with this report.

Here are our projections with the usual caveat that the numerous large 'adjustments' and revisions to this report make it very difficult to forecast with any reliability.

The imaginary jobs added, alternatively known as the "Birth-Death Model" of phantom businesses should be a relatively inconsequentional addition of 29,000 jobs into the pre-seasonally adjusted number. If it were added to the seasonally adjusted number it would be significant.



More important is the seasonally adjusted 'headline number' which we think will come in close to consensus with a loss of about 305,000 to 320,000 jobs. There is potential downside to this number depending on how they revise the October loss of 240,000. As you can see we are assuming they revise it much lower to a loss of around 310,000. The spin will be that the job losses are 'bottoming.'

The Bush Administration might choose to hit the numbers quite hard with a worst case adjustment down to the -400,000 level and then show a gradual improvement into the end of the term of office to make the case that the economy was bottoming and improving when handed over to the Democrats.

Conversely, a 'hot number' of a decline of only 260,000 or thereabouts with a stiff downward revision to October would set up the spin of a 'market bottom' and a strong rally. If you have not notice the smart money has been unloading stocks with some initiative the past few months, taking profits where possible in anticipation of an increase in taxes on capital gains and the wealthy under the incoming presidential administration, which is not a bad assumption.

The first scenario of a 'bottoming' around the 300,000 lost jobs level seems most probable despite these other possible outcomes. We won't be willing to bet on it however.

Its Machiavellian we know, but that's the way it is, and has been, and the way we see it based on everything we know.


And finally, the projected adjusted and actual numbers just to emphasize the huge seasonal adjustments that are being made, beside the historical revisions.



The government numbers have become distorted and less reliable over time, starting with some vigor in the Clinton Administration. Reacting to single number events is almost nonsensical but that is how the Wall Street speculation game is played these days. As Dr. Greg House says, "everyone lies" and that seems to be the case more often in these times, especially for those in positions of power.

The most important number is the longer term trend, which we suspect will remain lower until the economy bottoms. In fact, we expect a real bottom here to be an indicator of a nascent recovery as it was a sign of the top.

Is Goldman Sachs Managing Its Earning Expectations?

An interesting story from the Columbia School of Journalism regarding the Goldman Sachs story featured at The Wall Street Journal the other day suggest some oddness in the WSJ story on Goldman Sachs newly expected losses.

Did Goldman Sachs leak its own results? Are they accurate? Or was this a setup to dampen expectations on the results?

Or merely to provide 'guidance' to the Street? Note the stories at the bottom that shows analysts turning increasingly bearish on Goldman in October, and that Katzke of Credit Suisse actually cut estimates precipitously the day before the WSJ story, from a decent gain to a sharp loss. What precipitated her reversal?

Let's see how Goldman's numbers and follow-on stories come out, and judge accordingly. For now it looks like a simple case of follow the leader, the leader being Katzke from Credit Suisse who did a remarkable turnaround on her earnings projections from a gain of $2.47 to a loss of $4.00.

The Audit
Columbia Journalism Review
December 02, 2008 10:06 PM
Weird Goldman Sourcing at the Journal
By Ryan Chittum

A [Wall Street] Journal scoop this morning—or at least its sourcing—may have confused some readers.

The paper reported that Goldman Sachs’s loss this quarter would be much worse than expected, news it attributed to “industry insiders.”

That’s funny attribution, but okay. But scan the rest of the story and you’ll find that it appears nobody from Goldman was ever given an opportunity to comment. (Odd because the follow on stories indicate Goldman declined comments to other news outlets - Jesse)

Now, it’s highly unlikely that these experienced reporters got a story on A1 in the WSJ without calling the company for comment.

What the lack of a Goldman attribution signals to us is that Goldman Sachs itself leaked this to the Journal as a way to feed hungry beat reporters and get bad news into its stock price before it reports earnings.

The Journal has a nearly iron-clad internal rule that says a story can’t say a source declined to comment if that source is quoted elsewhere in the story. That can make for awkward negotiations if a reporter is trying to protect the identity of a source who doesn’t want to be named. (Apparently the WSJ broke that rule because Goldman declined to comment, so who leaked the insider information? - Jesse)

I don’t know why Goldman was so finicky that it wouldn’t let the Journal use its standard “people familiar with the matter” phrasing, but I’ve dealt with similarly skittish/irrational sources.

But for what it’s worth as an insiderism, that’s your likely explanation.

The Wall Street Journal
Goldman Faces Loss of $2 Billion for Quarter
DECEMBER 2, 2008

Goldman Sachs Group Inc., known for avoiding many of the blowups that have battered its Wall Street rivals, now is likely to report a net loss of as much as $2 billion for its quarter ended Nov. 28, according to industry insiders.

The loss, equal to about $5 a share, would be more than five times as steep as the current analyst consensus for the Wall Street firm, as it faces write-downs on everything from private equity to commercial real estate.

Though analysts and investors already were bracing for Goldman's first quarterly loss since it went public in 1999, the ...


Reuters
Goldman shares fall as analysts see bigger loss
Tue Dec 2, 2008 12:26pm EST
By Joseph A. Giannone

NEW YORK, Dec 2 (Reuters) - Goldman Sachs Group Inc shares fell Tuesday on speculation the bank's fourth-quarter loss could be much larger than expected -- more than $2.5 billion -- fueled by the plunging value of many Goldman investments.

The shares fell as much as 6 percent, rose briefly in volatile trading, then settled at $64.78, off 1.5 percent. They are down 70 percent this year.

For the past month, Goldman has been widely expected to post its first quarterly loss since going public in 1999. But poor market conditions got even worse last month as the U.S. Treasury abandoned its proposal to buy hard-to-trade mortgage securities and other debt from hard-hit banks.

Atlantic Equities analyst Richard Staite on Tuesday widened his loss forecast for Goldman to $4.65 a share, or $2.3 billion, for the fiscal fourth quarter ended Nov. 28. Staite forecast that falling equity and debt values will trigger more than $9 billion of writedowns.

Within hours, veteran UBS brokerage analyst Glenn Schorr forecast an even bigger loss -- $5.50 a share, or $2.7 billion -- driven by writedowns approaching $5 billion. S&P Equity Research cut its forecast to a loss of $3.25 a share.

That's a big change from a month ago, when the average Wall Street forecast was a profit of $2.34 a share; six months ago, the average estimate was a profit of more than $5.40 a share.

Currently, analysts' average forecast is a loss of $1.46 a share excluding one-time items, according to Reuters Estimates. Individual forecasts range from a profit of 23 cents at Wachovia Securities to a loss of $5.50 at UBS.

The average loss forecast will only deepen as Wall Street analysts try to estimate the impact of market weakness on a range of assets held in Goldman's investment portfolio and by its traders.

Goldman has long been the industry's most aggressive player in deploying its capital into everything from power plants and Japanese golf courses to ethanol makers and distressed debt.

As a group, analysts turned bearish on Goldman at the end of October, with industry watchers like UBS' Schorr and Merrill Lynch's Guy Moszkowski predicting small losses

AP
Ahead of the Bell: Goldman Sachs faces $2B loss
Tuesday December 2, 9:09 am ET

Report: Goldman Sachs could lose as much as $2 billion for its fiscal 4th quarter

NEW YORK (AP) -- Goldman Sachs Group Inc. could face losses totaling $2 billion when it reports its fiscal fourth-quarter results because of continued market turmoil and the expectation for large write-downs, according to a report in The Wall Street Journal on Tuesday.

The report, citing industry insiders and analysts, said the potential loss of about $5 per share would be largely due to write-downs on a wide array of assets that have increasingly lost value over the past three months.

A spokesman for Goldman declined to comment, noting that Goldman does not provide earnings guidance and does not comment on outside forecasts.

It would be Goldman's first quarterly loss since it went public in 1999....

AP
Goldman falls with market, analysts cut estimates
Monday December 1, 8:29 pm ET

Goldman Sachs falls as analysts cut 4Q 2008 and 2009 estimates

CHARLOTTE, N.C. (AP) -- Shares of Goldman Sachs Group Inc. dropped sharply on Monday as the broader market tumbled on concern about the economy and analysts cut their earnings estimates to reflect a dismal quarter.

Shares of Goldman fell $13.23, or 16.8 percent, to $65.76.

Goldman's decline came as the Dow Jones industrial average fell 680 points to about 8,149 and the Standard & Poor's 500 stock index lost nearly 9 percent. The decline was the result of investors' concerns about holiday shopping and new reports showing manufacturing activity fell to a 26-year low in November and construction spending fell by larger-than-expected amount in October.

In a note to investors Monday, Credit Suisse analyst Susan Roth Katzke said she now expects the New York-based firm will lose $4 per share in the fourth quarter. She had previously forecast a profit of $2.47 per share.

She also lowered her 2009 earnings estimate to $12 per share from $14.50 per share.

Analysts polled by Thomson Reuters, on average, forecast a quarterly loss of 62 cents per share and $10.38 per share for 2009.

Katzke lowered her target price on the stock to $140 from a range of $175-$200...